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Whether you’re setting up your first dental practice, expanding an existing one, or investing in new technology, financing can play an important role in helping your business grow.
Dental practices often require significant upfront investments, but they also tend to generate steady, predictable revenue. Because of this, many lenders offer specialized financing options designed specifically for dentists, often with competitive terms and flexible repayment structures.
Understanding the different types of dental practice loans and how lenders evaluate borrowers, can help you choose the financing that best supports your goals while keeping your practice on a solid financial footing.
Key Points
• Dental practice loans are specialized small business financing tools designed to help dentists build a new practice, acquire an existing one, maintain working capital, or upgrade equipment.
• Lenders frequently offer highly customizable dental office financing products, with many providing up to 100% financing to meet the unique financial demands of running a dental practice.
• SBA loans, which are backed by the federal government, can be easier to qualify for than conventional loans and may carry lower interest rates.
• Equipment financing loans can be tailored for dental practices, often covering up to 100% of the cost for clinical tools like patient chairs or imaging machines.
• Qualifying for a dental practice loan typically requires a strong credit score plus a favorable debt-to-income ratio.
How Dental Practice Loans Work
Dental practice loans are small business loans designed to meet the unique requirements for building a dental practice from the ground up, acquiring an existing one, ensuring enough working capital for your practice, or upgrading dental equipment.
Dental practices tend to generate predictable revenue and recurring income. As a result, lenders are often willing to provide dental office financing products that are highly customizable and may offer up to 100% financing.
Loan Amounts and Terms
Loan terms and how much you’ll be able to borrow will usually depend on what type of loan you take out and how you’ll be using it. For example, loan terms are typically 10 years but may be longer — as much as 25 years — if you’re using the loan to purchase commercial real estate.
Loan amounts will also vary. For instance, an equipment financing loan might be as little as $50,000. A loan to buy another business, however, could be upward of $2 million or more.
Fixed vs Variable Rates
Interest rates tend to vary by lender and may be fixed or variable.
A fixed-rate loan will offer an interest rate that never changes over the life of the loan. Borrowers with good credit histories are typically offered the lowest fixed rates on loans.
Variable rates, on the other hand, can shift over time. Variable rates are usually linked to (but higher than) the prime rate, which is the benchmark interest rate that banks charge their best customers. When the prime rate rises, it’s likely that interest rates on variable-rate loans will rise as well.
Types of Dental Office Financing
As mentioned above, there are different types of small business loans available to dental practices. It’s important to choose a loan type that matches your practice’s needs with the best interest rates and terms available to you. Here are a few popular options.
SBA Loans for Dentists
Small Business Administration (SBA) loans are generally offered through traditional lenders, such as banks and credit unions, but they’re partially guaranteed by the federal government. This means that they can be easier to qualify for than conventional loans and they can potentially offer lower interest rates.
There are two main types of SBA loans for small businesses: SBA 7(a) and SBA 504 loans.
SBA 7(a) loans are the more flexible loan type for a dental practice. These loans provide a maximum loan amount of $5 million and can be used for a variety of purposes, from working capital to purchasing equipment and supplies to consolidating debt.
SBA 504 loans offer loan amounts of up to $5.5 million and they’re typically used for the purchase or construction of real estate.
Conventional Business Term Loans
Lenders also offer conventional business term loans. These provide you with a lump sum of capital that you repay with interest over a set period. These can be first time business loans for a practice that’s just getting off the ground, they could be used to purchase real estate or they might be used to acquire another dental practice, for instance.
Because these loans are not backed by the government, they may be more difficult to qualify for than SBA loans. Lenders will look for practices with strong credit history and strong revenue. They may also require borrowers to put up loan collateral, such as a lien on business assets or a personal guarantee from the owners and a down payment.
Equipment Financing
There are equipment financing loans that are designed especially to help dental practices purchase clinical tools such as patient chairs or imaging machines. These loans may cover up to 100% of the cost of the equipment, and the equipment itself acts as collateral for the loan. With this kind of financing, if you fail to pay back your loan, your lender can seize the equipment to help recoup its losses.
What Can Business Loans for Dentists Be Used For?
Business loans for dentists can be used for a variety of purposes, including the following.
• Practice acquisition: Business acquisition loans help dentists assume existing practices as they begin their career or expand their businesses.
• Equipment upgrades: Updating equipment helps practices maintain their competitive edge.
• Startup capital: Some dentists will choose to build their practice from scratch, and startup loans can help them fund construction, purchase equipment, hire team members, and market the business.
• Real estate: In lieu of paying rent, some practices may choose to purchase existing offices or construct their own.
Recommended: Alternative Small Business Loans
How to Qualify for a Dental Practice Loan
Lenders generally look at a variety of factors as they decide whether to extend credit to your practice. First, they will typically want to see a strong credit history, including a healthy personal credit score. They will also look at your debt-to-income ratio, a measure of how much or your current income is already dedicated to debt repayment. That’s because they want to be sure you’ll have the bandwidth to take on more credit.
In some cases, lenders may ask you to provide some kind of down payment, which could be 5% to 20% of the loan amount, depending on factors like the purpose of the loan and the age of your practice. SBA loans may have looser down payment policies.
Lenders will also probably ask to see financial statements, including personal and business tax returns from the last two to three years, as well as personal and business financial statements that demonstrate revenue, profit, and losses.
If you’re starting your first practice, you’ll also likely need to provide a detailed business plan that includes an analysis of the local market and competition, revenue projections, and a clear statement of how you intend to use the funds.
How to Apply for Dental Office Financing
When you’re looking for the right lender, it can pay to shop around to find one who will provide terms that fit your needs as well as the cheapest interest rates. Remember that dental practices loans are often relatively flexible, so you may want to negotiate terms to better suit your plans. Once you’ve settled on a few top possibilities you can use the information above to gather the documentation you’ll need to apply for business loan financing.
The Takeaway
From SBA loans and conventional term loans to equipment financing and lines of credit, there are financing options available for nearly every stage of a practice’s growth. Before applying, take time to compare lenders, understand the total cost of borrowing, and choose a loan that aligns with your long-term business objectives and positions you for sustainable growth.
Ready to grow your business? SoFi Small Business Loans can give you fast access to the capital you need. Check your eligibility in minutes.
FAQ
What credit score do you need for a dental practice loan?
SBA loans will typically require a credit score of 650 or higher. More traditional loans may require credit scores of 680 or higher.
Can a new dentist get a practice loan without experience?
Lenders understand the startup process for dental practices and will often offer new dental practice loans even if they don’t have experience. That said, if you don’t have an operating history, lenders may closely scrutinize your personal finances.
How much does it cost to finance a dental office?
The cost of financing a dental practice generally depends on what your end goals are. If you’re starting a practice from scratch, your loan amounts could be anywhere from $350,000 to $750,000, for instance. Purchasing an existing practice could require a loan of $2 million or more.
Are SBA loans a good option for dental office financing?
SBA loans can be good options for dental office financing. They may be easier to qualify for, they generally require lower down payments, and they come with potentially lower interest rates than traditional options.
What’s the difference between dental practice loans and general business loans?
Dental practice loans are designed with the unique characteristics of dental practices in mind. Unlike general small business loans, which often focus on broad measures of business performance, these loans take into account factors such as the stable revenue generated through recurring patient visits, the value of long-term patient relationships, and the investment required for specialized equipment and office facilities.
Photo credit: iStock/FG Trade Latin
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